How to create a ‘spending plan’ you can stick to

SAN FRANCISCO – Budget. Was there ever a word less likely to incite excitement, even among those eager to get their personal finances in order?

We all know we should tally our expenses for a month or three to plug the holes down which our hard-earned loot is disappearing, but planners say budgeting is a common area of financial failure.

“It’s awfully painful and depressing for most people to sit down and say, â€˜Oh my God, look where the money’s going,”‘ said Kathleen Gurney, a psychologist and president of Financial Psychology Corp., a Sarasota, Fla., advisory firm.

Knowing the next step is deprivation – having to resist that spur-of-the-moment handbag or electronic-gadget purchase – doesn’t motivate consumers to stick to their budget homework.

To top it off, tallying expenses is boring, said Jane Bryant Quinn, columnist with Newsweek magazine, and author of “Smart and Simple Financial Strategies for Busy People.”

Consumers “start with a big bang and then they don’t keep it up,” she said. While we all know one person who religiously jots down every expenditure, most people are unsuccessful at daily financial record-keeping.

Luckily, there’s an easier way, Quinn says: Automatic withdrawals from your bank account into a retirement or savings account, or from your paycheck into an employer-sponsored plan.

“Automatic savings produces automatic budgeting,” she says. Without thinking twice, people tend to adjust their spending to jibe with the lower dollar amount in their checking account.

Others agree tallying expenses is often more an obstacle to budgeting than a means to getting it done. “One of the stumbling blocks for a lot of people is tracking expenses for three months,” says Ruth Hayden, a financial consultant in St. Paul, Minn.

She recommends a strategy that relies on smart estimations rather than detailed lists of each and every purchase.

That is, make intelligent guesses about how much you spend, decide what you want to spend, and then isolate pockets of money to ensure you don’t overspend in any one area.

The biggest source of money hemorrhage is usually the daily outlays that vary each week, including morning coffee, dry cleaner, and gas for the car. The most important thing to do is decide on a specific amount you want to spend each week on variable expenses, Hayden said.

Once you spend that amount, don’t spend more until the following week, she said, “otherwise they will literally leak money out of your checkbook.”

Another tip: Weekly family meetings or, if you’re single, check in with yourself, to focus on goals for the year, Gurney says.

“It’s having that goal, knowing what means most to you, and then putting the weight on that goal,” she says.

Tell yourself: “This is really more important to me than going out to dinner every week. I can bypass the dinner, just go for drinks with my friends. I want to be able to go away on that yearly vacation,” she said.

To avoid that sense of deprivation that can come from following a budget, stay positive, Gurney says. “Being wiser about smaller expenditures allows you to have … some of the things that are perhaps more satisfying in the end.”

Almost any consumer can afford to put aside 5 percent to 10 percent now without a budget, Quinn says, noting that when she was a single working mother in her twenties a friend had to convince her it was possible to set aside 5 percent, which she did, soon moving up to 10 percent.

However, “if you want to save more than 10 percent of your pay and you haven’t been saving before, you might find it necessary to budget,” she says. “This auto budgeting might not work for you anymore, because you are taking out a noticeable chunk of money.”

Automatic saving is a good beginning, but eventually you need to work through a budget, agrees James Gottfurcht, a clinical psychologist and president of Psychology of Money Consultants, a Los Angeles firm that counsels individuals on financial issues.

“You’re developing the habit of a savings muscle,” he says, “but you’re still vulnerable to blind-side catastrophes” which might derail savings plans.

“Almost every client we coach has some resistance or dislike to budgeting,” Gottfurcht says.

To ease the pain, avoid the word “budget,” and use “spending plan” instead. That phrase creates a different attitude, he says. “I’m allowed to spend. I’m entitled to spend.”

Another idea Gottfurcht employs with clients: Break the budget process into small bites.

“Start by just keeping track of your credit card” expenses, he says, organizing them into different categories such as auto, books, restaurants. After finishing that task, tackle expenses that flow through your checking account.

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